Back to the Village Post Office – S. Lakshman

The village post office plays an extremely important role in the economy. It is the lowest rung magnet that pools together the scattered savings at the bottom of the pyramid. Savings, that are then channelized into gainful deployment in the process of wealth creation. And it is here that a dangerous trend is being witnessed in West Bengal and some neighboring states.

What I am talking about, is the perceptible fall in the mobilization over the last couple of years, with such mobilization becoming a trickle in some areas. What is happening? Has the economy gone bust? Have people become saving averse all of a sudden? The answer to all these questions lie in the explosive and unchecked growth of the money market companies – the multi level monster that is quietly sucking up the resources from the grassroots, feeding its own growth.

The point to be noted here is that the cost of raising funds for most of these companies is so prohibitively high that it is impossible for them to honour all their commitments. Read my lips, they are doomed ab-initio. Yet they are flourishing, as the inherent greed of the community drives them on, pushing them up on to the next bigger orbit.

The question today is not about the inevitable burst, but about the timing or to be more precise, when will the noose be tightened? If current indications and signals are correct, the time is not far away. Some of these companies, who have started dabbling in the media feels that they can purchase immunity by using their publications and journalists in the payroll as shields. Some even opine that their chains are so big that the Government will not have the political will to act against them, thereby rending such a huge workforce jobless and alienate potential voters.

Both arguments will not be tenable and I feel that the crackdown will begin soon as these companies are not only playing with the life’s savings of the rural poor, but are also making obscene investments in frivolous pursuits that make no economic sense. Besides, the economy is being denied its resources which are being diverted, as I said, to unimportant sectors.

I am saying this as I see an increased activity of these companies seeking ways as to how they can go legit. More and more of these entities are now looking at exit routes – of scaling down operations and to enter areas where they will not have to be in the constant fear of a run on their business or of an impending crackdown.

There’s more coming. Watch this space!

(The author is a much sought after financial consultant and is a keen watcher of the emerging markets. He is the Managing Director of Finshore Management Services Limited which is awaiting its listing in the bourses. )